Hardware startups should consider local manufacturing

Great points - thanks Tobias!

I have backed a half dozen Kickstarters and Indigogos that were hardware based (consumer electronics) and chose to manufacture in China. Seeing the time and money they spend in order to fly someone over to China to troubleshoot and issue with manufacturing or testing has left me wondering - why do small startups choose to manufacture in China to begin with?

> Is it because they assume that despite the initial cost over local manufacturing the investment will be worth it if their product takes off?

> Is it because everyone else seems to do it?

> Or maybe because there aren't any good local places to have electronics manufactured? This I would find a little hard to believe given the concentration of hardware startups in SF, NYC, SEA, which have local hardware manufacturers.

In NYC, there's http://www.refactory.co/. I used to work with these guys, and they're great.

Local manufacturing only works if you're in a place where there's a lot of manufacturing, or your product doesn't really require much manufacturing capability. You many need to be in a place where there's someone down the street with a 20 ton press. If you need a 20 ton press, you need to be in a place where at least three shops have one.

If you're making things which are basically PC boards, manufacturing is not too hard. Making boards and soldering parts onto them has a well developed workflow. There are lots of board houses and board-assembly services. If you design for what a pick and place machine can do easily, things usually go well. Hint: production is surface mount today. This is a pain for people who are used to prototyping with through-hole parts.

Kickstarter-class startups seem to have excessive problems with making cases and panels. Tooling for injection-moulded plastic is difficult and expensive. Once you get it right, the parts just fly out of the machines at a few cents per part. The production process is just getting warmed up on a run of 10,000 parts, and few Kickstarters get there. Basic truth about manufacturing: most of the processes are really cheap if you're making enough items, and far more expensive for short runs.

My guess would be that it starts with the assumption that "China is cheaper", and that makes for an easy story to tell to investors "we're making XYZ in China!". The second you say "we're making it in Texas", it opens you up to questions of "isn't that expensive?"

On the face of it, I'm sure the up-front quote from a Chinese manufacturer is cheaper than something in the USA. Where costs skyrocket is when something goes wrong: the parts are wrong, the products aren't ready on time, something was done incorrectly, etc. If you don't have a manufacturer you can trust, one of those will happen, and is almost impossible to diagnose from the US.

Even if all of that works out, there are other things to consider: costs (and time) of shipping. Want it in a week? Well, get ready to pay. Even if you ship it air freight consolidated, it's still not cheap. If you want it on a boat, there's a good chunk of time to think about.

On top of THAT, there are all sorts of fun import tariffs and such to deal with (at least on the US side). Get ready to front money for an import bond, for starters! And there may already be some hidden costs of importing into the US: if you use some TI parts that have to be imported into China, you're going to be paying taxes twice.

A lot of those things are likely not looked at in the low quote from a Chinese manufacturer. They're costs that can/will show up later along the line.